Section 115BBE (Taxability of Undisclosed / Unexplained Income)

Section 115BBE of Income Tax Act covers all undisclosed / unexplained income on which tax is not paid, which if found by the Assessing officer then he may treat such income as deemed income in the year in which he found and computes its taxability as per Section 115BBE.

This section is applicable on all the assessee whether he is individual, HUF, Firm etc.

Also there is no threshold limit, even if the undisclosed income is of Rs.5000 only then section 115BBE becomes applicable also.

In the following, we have explained in detail about the Section 115BBE:

 

What is Section 115BBE of Income Tax Act, 1961?

Section 115BBE covers the scope of undisclosed Income through different sources and sets its taxability.

Undisclosed Income can be said like if a person shows certain cash in the books of Accounts but he could not explain the source of such income to the Assessing officer, then such income is covered under Section 115BBE and its taxability is also calculated as per Section 115BBE.

But here point to note is that, all the unexplained income is not cover under this section because there are certain transactions in the small business where they do not maintained the record of name and address of purchaser during cash sales or sometime there is not required to maintain the books of accounts (like under section 44AD) but that person has paid tax on such income under the provision of Income Tax.

So this section covers that income which has been hidden by the assessee and not paid tax on such income. On scrutiny by the Assessing officer if found assessee is not able to explain the sources of such income then section 115BBE applicable.

 

What are the types of undisclosed / unexplained Income cover under taxability of section 115BBE?

Following are the different cases of Income which if found by the Assessing officer and person could not explain the same then such income is taxable under section 115BBE.

 

Section 68 (Unexplained Cash Credit)

In any year if the Assessing officer found any amount credited in the books of Account and assessee could not give the explanation or explanation given is not satisfactory, then such amount shall be deemed income of the assessee in the year in which assessing officer found the income.

Example:

If in F.Y 2019-20 assessing officer found an amount of 800,000 credited in the books of accounts of Mr.X but Mr.X could not explain the source of this income then the same shall be taxable under section 115BBA.

 

Section 69 (Unexplained Investment)

Under section 69 of income tax, if a person made investment and not recorded in the books of accounts but on questioning by assessing officer if he is not able to explain or explanation is not satisfactory then this income also cover under the taxability of section 115BBE as it becomes his deemed income in year in which assessing officer found this fact.

 

Section 69A (Unexplained Money, Bullion, Jewellery or other variable articles)

If a person found in possession (owner) of any Money, Bullion, Jewellery or other variable Articles but not recorded in the books of accounts then on not able to explaining the source of acquisition or about its nature, assessee has to pay tax as per section 115BBE on such income in the year of found.

 

Section 69B (Investments not fully disclosed in Books of Accounts)

If on scrutiny by the Assessing officer it is found that a person has investments or ownership of any Gold, Bullion, jewellery or other variable article, but its amount not recorded fully (partially recorded) in the Books of accounts then also the amount which is not disclosed become deemed income under section 115BBE.

Example:

Mr. X has investment in Jewellery of Rs. 10 Lacs but he records in the Books of Accounts only Rs. 3 Lacs. Assessing officer found this fact in F.Y 2019-20 and Mr. X could not give a satisfactory explanation. Then remaining amount i.e. Rs. 7 Lac will be taxable as per Section 115 BBE of income tax act in F.Y 2019-20.

 

 Section 69C (Unexplained Expenditure)

It usually happens that some people show fake expenditure, so that their income get reduced and ultimately have to pay less tax but if Assessing officer found that any person has booked fake expenditure in books of accounts in any of the reason, then such expenditure become deemed income in the year in which Assessing officer found that expenditure.

Example:

Mr. X allows fake expenditure in the F.Y. 2017-18 of Rs. 10 Lacs and the Assessing officer found the fact in F.Y. 2019-20 then Rs. 10 Lacs will become deemed income in F.Y.2019-20 and has to pay tax under Section 115 BBE.

 

Section 69D (Amount Borrowed or Repaid on HUNDI)

If amount borrowed on Hundi or repayment of borrowed amount thereon to any person otherwise than by account payee cheque then the such amount shall become deemed income of the person who is borrowing or repaying the amount.

Example:

Mr X borrowed Rs. 10 Lacs on Hundi by an account pay cheque but repaid the same amount along with same interest of Rs. 5 Lac in cash then while borrowing there is no problem as the transaction is by using account payee cheque.

But, because repayment in cash the whole amount Rs. 15 Lacs (Rs. 10 Lacs + Rs. 5 Lacs) will become deemed income.

 

Meaning of HUNDI

It is an unconditional order in writing in which one person directs another person to pay money to a person named in order. (Just like Bills of exchange).

 

When undisclosed Income is taxable under Section 1115BBE?

Upon total Income of a person (assessee) includes any income in section 68, section 69, section 69A, section 69B, section 69C or section 69D and the same is reflected in ITR is taxable under Section 1115BBE.

OR if any income is determined by the Assessing officer in section 68, section 69, section 69A, section 69B, section 69C or section 69D, then also it is taxable under Section 115BBE at the tax rate specified in this section.

 

What is the tax rate under Section 115BBE of Income Tax Act?

Undisclosed / unexplained Income is taxable at a flat rate of 60%. After applying a tax rate of 60% surcharge and cess is also added to it.

But remember while computing tax at the rate of 60% no deduction of any expenditure or allowance from such income is allowed.

Deductions here do not mean chapter VI-A deductions. If a person has Normal income also and wants to claim deduction under section 80C then he can claim the same.

Deduction under this Section 115BBE simply means any allowance of expenditure for generating undisclosed income.

Example:

Mr. X has undisclosed income of Rs. 5 Lacs and he made some expenditure of Rs. 2 Lac for generating such income then in this case tax as per Section 115BBE is calculated as Rs. 3 Lac (Rs. 5 Lac * 60%) along with cess and surcharge if any and expenditure of Rs. 2 Lac is not allowable.

 

Note: Set off of losses from such undisclosed income is also not permissible.

 

What is the Penalty of contravention under Section 115BBE?

Penalty under section 271AAC of Income Tax Act

If a person has undisclosed income and does not include such income in income tax return or tax under Section 115BBE has not been paid on or before the end of relevant previous year then the Assessing officer may direct the person to pay penalty under Section 271AAC.

Quantum of penalty is 10% of tax payable as per Section 115BBE.

Here it is noted that the penalty of 10% is to be applied to the tax rate of 60% and not including surcharge or less.

Example:

If tax after applying 60% is Rs. 5000 and cess it is Rs. 5200. Then a penalty of 10% is to be calculated on Rs. 5000.

 

Summary

Section 115BBE of Income Tax Act covers all such income which a person hides and does not include in tax return resulting in paying no tax on such income.

So if the Assessing officer found that there is undisclosed income and the assessee has not paid tax on such income then it comes under the preview of Section 115BBE.